Medical Messing up the Mix in California Workers’ Comp

If you hunt for answers among California’s myriad experts and those with informed opinions on workers’ compensation and ask them to name the biggest problem with the system, a majority will cite the rising costs associated with treating injured workers — it’s almost a no-brainer, considering that for the past few years studies show medical costs and utilization consuming the lion’s share of workers’ comp payouts.

Dr. Douglas Benner, chief medical officer of San Jose, Calif.-based EK Health Services, a national workers’ compensation managed care firm, likes to drill down further on the topic — and he doesn’t mind offering his opinion on just what he feels are the biggest contributors to the problem.

“I’d say overtreatment and ineffective treatment,” Benner said.

Workers’ compensation in California, as in many states, is being hit particularly hard by rising medical costs. That is forcing premiums to rise — and they will likely continue rising faster than payrolls can grow.

“For the last 20 years there’s been a shift,” Benner said, noting that it used to be that disability and indemnity constituted about half of the sum for claims paid out, with medical expenses counting for the other half. “Now medical is becoming the largest component paid.”

Recent studies show that over the last few years visits, procedures per visit, and average costs have all been on the rise, and these rising costs are putting pressure on the system.

In fact, the Workers’ Compensation Insurance Rating Bureau has proposed on July 1 to have an increase in the pure premium rate.

According to WCIRB, advisory pure premium rates average $2.51 per $100 of payroll, which is 4.1 percent higher than the industry average filed pure premium rate as of Jan. 1 of $2.41.

“Since the reforms of 2002 through 2004 were fully implemented in 2005, losses and loss adjustment expenses have grown more quickly than the California economy as represented by insured payroll,” WCIRB states.

ALAE

Medical and allocated loss adjustment expense (ALAE) per indemnity claim is projected to rise by 66 percent from 2005 to 2013, but the wage level growth in California is projected to be only 25 percent over the same period, according to WCIRB.

In the three quarters since WCIRB’s March 31, 2011, evaluation of experience, the indicated average pure premium rate per $100 of payroll has increased by 18 cents.

Current costs per claim for all major cost components are “well above the levels incurred immediately following full implementation in 2005 of the 2002 through 2004 reforms,” WCIRB states.

Accordign to WCIRB the average medical cost per indemnity claim has risen by 45 percent since 2005.

And a 2011 study by the California Workers’ Compensation Institute analyzing increases in medical severities based on payment data through then end of 2010 showed large increases in medical payments per claim over a range of medical treatment categories and injuries.

The CWCI data blames those increases on across-the-board rises in number of visits per claim, number of procedures per visit, and the average cost of each procedure.

And according to WCIRB, the cost of Medicare set-asides has been increasing. WCIRB cites a 2011 study conducted by the University of California at Berkeley that the total countrywide cost of Medicare set-asides rose from $180 million in 2004 to $950 million in 2008, putting the figure at roughly 4 percent of total medical paid.

Medicare requires that funds be set aside in trust for future medical expenses for injured workers who will become eligible for Medicare during their claim period. Centers for Medicare and Medicaid Services (CMS) must approve these set-asides for trusts exceeding $25,000 before a claim can be closed.

But CMS has had some criticism for taking too long to review and approve these trusts. Even if the injured worker has approved the settlement, a claim can remain open and benefits continue to be paid sometimes for months until CMS signs off.

However, there may be some relief on that front. A pair of Congressman have authored the Medicare Secondary Payer and Workers’ Compensation Settlement Agreement Act of 2012 (H.R. 5284), which aims to resolve the delays and introduce consistent standards into the review of set-asides by CMS.

It’s tempting to blame the rising cost of healthcare for the increases being seen in workers’ comp medical costs, however an annual report from the California Commission on Health and Safety and Workers’ Compensation shows that from 1998 to 2010 workers’ comp medical costs have far outpaced medical inflation, and that’s been the case every year.

That report also shows increases almost across the board in medical benefits paid by insured employers from 2009 to 2010 totaling more than $137 million. According to the report, payments to physicians rose more than $35 million, and payments to hospitals were up more than $48 million during that time. Pharmacy also accounted for a large portion of those increases, rising by more than $21 million.

Opioids

Among the medical costs drivers is the cost of pharmaceuticals, which has increased rapidly since 2005. The 2011 CWCI study showed that pharmaceutical costs, which include durable medical equipment, per indemnity claim through 12 months of treatment almost doubled from $279 on accidents occurring in 2005 to $543 on accidents occurring in 2009.

Further CWCI research suggested that this increase is partially attributable to sharp growth in the use of Schedule II Opioids and in the utilization of compound drugs.

“Pharmacy is one of the biggest drivers of medical costs,” said Benner, who formerly worked for Kaiser Permanente, where he was the founding medical director of Kaiser’s On-the Job practice. “Pharmacy is going up and up and up, some of that is due to opiates and new formulations of opiates.”

Opiate use in workers’ comp related cases between 1997 and 2007 rose an estimated 627 percent, while deaths related to opiates have risen 300 percent, according to Benner.

The rise in use comes on a rising tide of popularity of painkillers, such as Fentanyl, which comes in a convenient Band-Aid-like formulation, as well as in a lollipop form. The narcotic analgesic, which has been historically used to treat breakthrough pain, is estimated to be 100 times more potent than morphine.

Such potent opiates are being prescribed more often by doctors with patients on workers’ comp, Benner said.

Surgery is another growing contributor to workers’ comp expenses, according to Benner.

Hardware in surgical procedures used to be considered part of the surgery and calculated in the costs, but a practice that’s becoming more commonplace now is adding the hardware as a separate expense, pushing up surgery costs, Benner said.

“We’ve seen surgery bills of over $100,000 for spinal surgery,” he said.

He added: “More people are getting more procedures, there’s more surgery, and the surgery that’s done is more expensive, and there’s all this technology.”

Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, a group that represents the interests of employers, believes the system incentivizes bad actors.

More and more doctors who are not authorized to tackle workers’ comp cases are taking them on. After treating their workers’ comp patient, they use medical treatment liens to get paid for their services rendered. Once their lien is in the workers’ comp system, the doctors can negotiate how much they will settle for and they can expect a reasonable settlement, Azevedo said.

“The reason that this type of behavior is exploding is they have a reasonable expectation that they’ll get paid,” he said. “Judges are just drowning in these liens. Hundreds of thousands of them each year.”

According to the report from the Commission on Health Safety and Workers’ Compensation, roughly 350,000 workers’ compensation liens were filed in 2010 and over 450,000 more are expected to be filed in 2011.

Litigation over these liens is one of the fastest growing cost drivers in the workers’ compensation system, according to Azevedo.

Oversight

Senate Bill 863, authored by State Sen. Ted Lieu, would reform how these liens are handled, placing greater restrictions on the Workers’ Compensation Appeals Board and other state organizations in regards to handling of these liens.

The bill is moving its way through state Legislature. It passed a full Senate vote with no opposition and so far it has received unanimous support in the Assembly.

Lack of oversight is another phrase uttered by people when they are asked to evaluate California’s workers’ compensation system.

Waning oversight of the state’s workers’ comp system, such as a utilization review process intended to stem overuse and abuse of the system, is often blamed for rising costs. In fact, at a recent hearing at the state Capitol on potential workers’ comp reform package, the cost of utilization review was blamed as being among the problems causing a surge costs in the system.

“It seems like in workers’ comp there are less controls than in group health,” Benner said. “California does have utilization review, but people are very creative in how to work around it.”

Talk of another comprehensive workers’ comp reform package due out this year similar in scope the one pushed by Gov. Arnold Schwarzenegger during his term in office has grown louder. At the end of March a joint Assembly and Senate hearing was held, titled “Informational Hearing, Injured Workers Since SB 899: A Discussion on the Impacts of SB 899 on Permanent Disability Benefits,” to discuss such reform.

The tone of most speakers at the hearing — speakers included California Insurance Commissioner Dave Jones, organizations like CWCI, the chief of the Department of Industrial Relations, insurer associations, and worker advocates — suggested another reform package approaching the magnitude of Senate Bill 899, the legislation signed by Schwarzenegger in 2004 that changed or affected just about every part of the state’s workers’ comp system.

But for now it has been up to companies to push safety standards, as well as shop for the best rates, and for insurers to rely on programs like those at EK Health Services, where Benner says they are working on the problem in early and late stages.

Managed care firms like EK Health review bills, conduct utilization review, and consult with physicians to deny or modify treatment requests.

One of their primary programs attempts to address what some see as one of the biggest issues driving medical costs: legacy cases.

EK reviews legacy cases, those lasting from two to 10 or more years, then examines what types of medications and treatment plans the patients are on. They assign a team of professionals as part of a monthly roundtable discussion with the attorneys for the client, treating physicians to develop a plan for getting a patient back to work.

In many cases, it’s discovered a patient is on too large a dosage of opiates or conflicting medications are making the patient worse, keeping them from returning to work, Benner said.

“We’ve had patients on potentially lethal doses of opiates,” Benner said. “Some of these cases are running several hundreds of thousands of dollars a year, and these people get to be pretty nonfunctional.”

Beside legacy cases, EK Health Services also pushes a program that addresses cases flagged early on in the claims process that pose a risk of turning into legacy cases.

The firm uses a short list of questions that ask people about their attitudes toward pain, their job and how they function at it, if they have fears of getting better, if there’s joy in their life.

“You can stratify people who may have a high risk of not getting better,” Benner said, adding that the program zeroes in on personality disorders, depression and other issues that may signal a person is a more likely candidate to experience trouble coping with an injury.

Such people tend to “catastrophize,” or make things seem worse than they are, Benner said, adding the program helps them get special attention, such as coaching, “so they don’t get stuck.”

Comorbidities

Aside from mental roadblocks to recovery are physical barriers that are increasingly coming into play as a factor in rising workers’ comp costs.

Examples are a worker who injured a knee and who is also obese and not highly mobile to begin with, or an aging worker with an injured back, making a timely return to work more difficult for either worker.

“Comorbidities are a growing factor,” WCAN’s Azevedo said. “It’s among the macro-dynamics that are affecting medical costs. It’s this whole issue of comorbidities with people working who are older, people working longer, and we are as a society more overweight and less fit than maybe we were at a certain point in history.”

Azevedo places comorbidities as one of the “big ticket items” he believes are weighing on the system.

Like others who have made their careers dealing with California’s unwieldy workers’ comp system, Azevedo blames utilization, problem areas like surgery costs, prescription drugs and an “explosion in diagnostics and testing,” as well as an erosion of some of tools adopted in the last decade that were intended to deliver health care according to evidence-based guidelines.

While working to fix the system takes up a lot of his time, it’s the eventual impact that a system most say is again broken will have on those he represents that takes front-and-center in Azevedo’s world.

“We’ve been watching costs go up in California for a number of years both on the medical and indemnity side and eventually that’s going to be reflected in the costs that employers pay for workers’ comp insurance,” he said.

Paid by Insured Employers

Source: California Commission on Health and Safety and Workers’ Compensation

Topics California Workers' Compensation